Investor Presentation June 2020 · Under construction Western Corridor, voltage upgrade South 6,600...

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Investor Presentation

June 2020

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Investor presentation March 2020

The most important infrastructure. Of all.

The future is electric3

1

2

3

4

Green investments

Business Risk: Excellent

Low finance risk

THE MOST IMPORTANT

INFRASTRUCTURE. OF ALL.

The most important infrastructure. Of all.4

1

Government (AAA) ownership and backing. Fully regulated.


Critical infrastructure in one of the world's richest countries

Statnett is the TSO in the Kingdom of Norway (Aaa/AAA/AAA)

• "Pure play" transmission

• CICERO: Dark green shading

• No volume or commodity risk

• State Enterprise – by law, only the government can be the owner

• Fully regulated

• Low volatility in underlying earnings

• Stable regulatory regime, one of the longest track records in Europe

• The board committed to a "robust A rating"

• Issuer rating A2/A+ by Moody’s and S&P, respectively

• COVID-19 – measures in place - very limited consequences for operations,

investments and financials.

• Temporary reduction in tariffs in 2021 to be made up, underlying revenue unchanged


Main figures 2019

Facts

Grid size (km high voltage power lines) 11,000

Subsea and land cables (km) 1,600

Substations (No.) 170

Empoyees (No.) 1,490

Financials (NOK billion)

Balance sheet 76.3

Revenues (adj) 10.4

EBITDA (adj) 6.2

Profit after tax (adj) 2.5

Ministry of Petroleum and Energy


The Board

Customers

RME NVE

Governance reflects the strategic role

Regulator

Security of supply

One defined mission

8

MISSION

ClimateValue

creation

“To develop the

next generation

power system

in Norway

by 2030"


9

Statnett – Green, social and responsible.

Supporting 8 key UN Sustainable Development Goals



Sustainable highlights 2019

Environment

• Construction work without fossil fuel

• Climate: Procurement selection criteria

• GHG reduction by 4 %

• Initiatives on biodiversity

Social

• Decreased injury rate by contractors

• 80 % covered by collective bargaining agreements

• Signed agreement with the Norwegian Tax Authorities

Governance

• Established ESG Committee

• Appointed dedicated ESG coordinator

- English picture


Low emission construction site

Photo: Mimsy Møller, Dagsavisen

• Constructing the Smestad-Sogn cable tunnel for the electric future of Oslo

• Total site emissions reduced by 78%

• Electric tunnel machinery

• Electric light duty vehicles

• Trucks and heavy machinery: Renewable diesel without palm oil

• Statnett targets to cut own emissions by 25% compared to 2020 before

2025


We combat labour crime

• Formalized collaboration on labour crime with tax authorities from Nov. 2019

• Statnett's guidelines prerequisite for suppliers

• Must comply on HSE, environment and quality standards

• Acceptance for info sharing with tax authorities

• On-site control of salary and working conditions for workers

• Maximum two layers of sub-suppliers allowed

• Zero injuries vision. Injury frequency halved since 2014.

Statnett and Norway's tax authorities join forces to combat labour crime


Governance – Transparency, dialogue and acceptance

CEO Auke Lont

• ESG Committee established in 2019

• Dedicated ESG position

• The Board of Directors overarching responsibility for CSR

• Top management responsible for measures and reaching goals

• Policy on CSR part of Statnett's management system

• Zero tolerance on corruption, harassment and labour crime

• Dedicated Ethics Representative managing whistleblower programme

GREEN

INVESTMENTS

Green investments14

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Green investments15

Green projects in Statnett

• Contribute to national climate goals

• Ambition: Leading company in climate and environmental activities

• Minimized impact on biodiversity, landscape and communities

• Green projects exceed NOK 20 billion

• Connecting renewable power production

• Enabling efficient use of clean energy

• Increasing the market for renewable energy

• Currently financing: "Smestad – Sogn" and "North Sea Link"

Green investments16

Smestad – Sogn: Supporting The Green Capital of Norway

• Renew Smestad substation and build new cable interconnector

between Smestad and Sogn

• Expected cost 1,250 – 1,390 NOK million

• Oslo is the European Green Capital 2019

• 30 % new cars sold being electric vehicles

• Targets to cut emissions by 50 % by 2020 and 95 % by 2030

• The project is a part of The Greater Oslo Grid Plan ensuring a

reliable supply of electricity to Oslo and Akershus

Green investments17

Connecting the European power market

• Norwegian electricity production is generated by 98%

renewable energy, of which 97% is hydro power

• The power surplus in Norway generates clean electricity

export to both UK and Germany when prices are high -

reducing the initiation of higher marginal cost electricity

abroad, typically fossil fuels

• When wind blows and the sun shines there is an excess of

renewable energy in UK (wind) and Germany (wind/solar)

which Norway then imports and can conserve water in

many of the reservoirs

North Sea LinkCapacity app. 1,400 MW

Est. compl. 2021NordLinkCapacity app. 1,400 MW

RAB in 2019 with trial and

commercial operation in 2020/2021

Green investments18

Green investments all over the country

Connection of wind-power along the coast – Fosen and Bjerkreim

Capacity projects on the west coast

Energy intensive industry, electrification offshore

Interconnectors to Germany and the UK

Connection of data centers in all parts of the country

Security of supply in major cities - Oslo, Bergen and Stavanger

Necessary replacements of stations and lines

New industry and security of supply – North Norway

Green investments19

CICERO Second Opinion: Dark Green

Strengths

• "Overall, Statnett’s green bond framework provides a progressive,

clear and sound framework for investments into projects that well

align with the Green Bond Principles"

• "The overall assessment of the governance structure of Statnett

gives it a rating of Excellent"

• "Statnett has updated its climate and environment strategy and

defined ways for how to reduce emissions"

Weaknesses

• “There are no apparent weaknesses in the framework”

sentence

Green investments20

Bringing Statnett´s investments to a new level

0

2

4

6

8

10

12

14

Bill

ion

NO

K

• Investments will stay at a high level until

both interconnectors are completed in

2021. After 2021, investment levels are

expected to be more moderate

• Contractual obligations (exceeding NOK

50 million) amounted to NOK 6.6 billion

as of 31 December 2019.

Green investments21

Significant investments successfully completed

Execution

on track

Consistent and

significant

savings

Numerous major projects completed within the last 10 years

“BUSINESS RISK:

EXCELLENT”

"Business risk: Excellent" - S&P22

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_________

S&P, Research Update, February 2020

Excellent business risk confirmed by both Moody’s and S&P


Moody’s Credit Opinion, May 2019 S&P Global Ratings, 14 March 2019

“Stable and predictable cash flows generated under one of the most well-established and transparent regulatory frameworks in Europe”

“Efficient grid and transmission system”


Cost based revenue with a regulated rate of return

• "Pure play" transmission - fully regulated

• No power price or volume exposure

• Allowed revenue – cost based - 100% when efficient

• Operating costs (with 2 year time lag, plus inflation,

some costs are back-to-back same year). Depreciation is cash

compensated same year

• RAB (as of 31 Dec each year), regulated return (WACC, 5.69% in

2019).

• Allowed Revenue annually adjusted to fit updated costs and rates –

no regulatory period end point

• No "x-factor" (no general across industry efficiency improvement

requirement)

• Allowed revenue distributed between customers through tariffs

• Differences to allowed revenues made up in subsequent years

• No significant counterparty risk - limited credit allowed and any losses

would be picked up by all customers (included in allowed revenues)

Stable earnings, driven by growing Regulated Asset Base (RAB)


0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Mill

ion N

OK

RAB (index) EBITDA excl. higher/lower revenues EBITDA (IFRS)

LOWFINANCE RISK

Low finance risk26

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Low finance risk27

Prudent financial policies and low financial risk

Sufficient liquidity…

Low counterparty risk

Low interest rate risk

• … to fund operations, investments and redemptions over a minimum 12 months period

• NOK 8.0 billion committed RCF (undrawn, matures Jan 2024)

• Normalised cash position: Approx. NOK 2.3 billion

• Minimum rating requirement of A-

• Credit Support Annex (CSA)

• Regulated rate of return 5.69% in 2019

• Seek to correlate rate on debt with NVE-interest rate (regulated return)

Low finance risk28

Multiple sources of capital as of 31.12.2019: Total NOK 40.6 billion

Domestic CP3,0

Domestic Bonds10,2

Issues in EUR10,0

Issues in USD7,2

SEK1,6

CHF0,9

Drawn Bank Loans EIB & NIB

7,8

Low finance risk29

Low refinancing risk as of 31.12.2019

Average time to

maturity: 7.1 years

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

MN

OK

Commercial Paper

Bank Loans

Domestic Bonds

International Bonds

Rating Agency Short-term Rating Long-term Rating Outlook

Moody´s P-1 A2 Stable

S&P Global A-1 A+ Stable

Low finance risk30

Long term funding

• Undrawn Credit Facility NOK 8.0 billion

• Strong and supportive bank group

• Robust A rating policy

Access to capital markets supported by

The owner of Statnett SF (The Kingdom of Norway), is rated Aaa/AAA/AAA by Moody´s, S&P and Fitch, respectively

Latest credit opinion report on Statnett SF from S&P Global: 26 Feb 2020, from Moody's: 24 April 2020

SUMMARY

Summary31

5


Summary32

1

2

3

4

Green investments

Business Risk: Excellent

Low finance risk

Summary33

Key investment highlights

Statnett is the TSO in the Kingdom of Norway (Aaa/AAA/AAA)

See appendix for details on revenue regulation model

• "Pure play" transmission

• CICERO: Dark green shading

• No volume or commodity risk

• State Enterprise – by law, only the government can be the owner

• Fully regulated

• Low volatility in underlying earnings

• Stable regulatory regime, one of the longest track records in

Europe

• The board committed to a "robust A rating"

• Issuer rating A2/A+ by Moody’s and S&P, respectively

APPENDIX

Appendix34

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Appendix35

Climate – Ambitious strategy

• Industry leadership on environment and climate efforts.

• Support national climate goals - facilitate electrification and renewable energy.

Operative targets

Integrated & documented

Procurement

Incentives & choices

Appendix36

Norway – hydro reservoirs supporting a greener Europe

• Norwegian power production dominated by hydro (96%)

• Power surplus – clean energy export

• Reservoir flexibility supports European renewables

Week 2 2019: Wind power production and power exchange

I

Appendix37

Key investments

Project Region Expected investment (MNOK)

Commissioned projects

Namsos - Åfjord and Snilldal - Surna, new 420 kV power line Central

Bjerkreim, new transformer substation South

Elhub

Under construction

Western Corridor, voltage upgrade South 6,600 - 6,800

Balsfjord – Skaidi, new 420 kV power line North 4,000 - 4,500

Lyse - Fagrafjell, new line and substation South 2,020 - 2,095

Smestad – Sogn substation and cable installation East 1,250 - 1,390

Interconnectors, under construction

Cable to UK (North Sea Link) 1) MEUR 750 - 1,000

Cable to Germany (NordLink) 1) MEUR 750 - 1,000

1)Statnett’s share. Exposure mainly in EUR, in range of NOK 7–9 billion per project

Agreements with partners in Germany and UK are denominated in EUR.

Appendix38

Reconciliation of financial key figures (in million NOK)

*See note 4 in Annual Report for changes in accumulated

higher/lower revenue.

Unadjusted figures 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenue 7,247 5,497 5,334 4,561 5,563 5,906 6,678 7,401 9,138 9,641

EBITDA 3,945 2,426 2,260 1,394 2,528 3,340 3,296 3,715 5,100 5,432

EBIT 3,279 1,628 1,433 346 1,378 1,714 1,152 1,312 3,120 3,027

Profit after tax 2,198 1,000 837 82 829 1,103 645 813 2,213 1,906

Adjustments

Accumulated higher revenue* 1,553 2,617 3,455 2,413 1,790 1,346 343 -303 59 -732

Adjustment for changes in acc. higher/lower revenue -2,186 -1,064 -838 1,042 623 444 1,003 646 -362 791

Adjusted figures

Adjusted revenue 5,061 4,433 4,496 5,603 6,186 6,350 7,681 8,047 8,776 10,432

EBITDA 1,759 1,362 1,422 2,436 3,151 3,784 4,299 4,361 4,738 6,223

EBIT 1,093 564 595 1,388 2,001 2,158 2,155 1,958 2,758 3,818

Profit after tax 624 234 234 832 1,284 1,427 1,397 1,304 1,934 2,523

Appendix39

Predictable revenues and profitability dynamically adapted to costs

Efficiency score: 100%Successful benchmark with other

European TSOs. Efficiency

programme initiatives

Timely compensationNo time lag on investments, system service

costs or depreciation, two years lag on operational costs

(compensated with inflation)

1.5% + Inflation + 0.875 x 5%

(1-Tax rate)

Costs1 x 40%2 + Costs1 x 60%2 x Efficiency Score

2Regulated rate of return (2019: 5.69%)

1Revenues:

x 40%3 + (5y swap rate + margin) x 60%3

1) See separate slide for definition of costs 2) From 2023: 40% and 60% will change to 30% and 70% respectively 3) 40% equity share regulatory assumption – fixed parameter independent of company

Appendix40

Transportation Loss in grid in

year n-2, times updated power

market price in year n (which

takes away practically all price

risk for Statnett)

Cost of

Energy

not

delivered

times 60%1

Cost of

system

services

Transit

costs

(back-

to-back)

Property

tax (back-

to-back)

Norm Cost = Cost Base * Efficiency score

Cost Base = O&Mn-2 * CPIn

CPIn-2

+ Dn + 1.01*RABn * NVEraten

Revenue Cap = 40%1 * Cost Base + 60%1 * Norm Cost + TLn-2 * Pn + CENS + Sn-2 + TrC + Ptax

Inflation adjusted operating

and mainenance costsDepreciation in

year n

Rate of return on Regulatory

Asset Base in year n

Note that the regulator calculated Dn and RABn*NVEraten in two steps, first with two year's timelag on Dn-2 and RABn-2,

then adding the increase in basis from n-2 to n. Total effect as described above.

Calculation of allowed revenue

1) From 2023: 40% and 60% will change

to 30% and 70% respectively

Appendix41

Organizational structure

Knut HundhammerCFO and Executive Vice President

Hundhammer was educated at the Norwegian Military Academy and has an MBA from Wharton School of Business in the US. He joined Statnett in May 2011, and is responsible for the Group's economy, finances, HR, HSE, legal affairs, risk management and quality. He has previously been Deputy Managing Director/CFO of Finansbanken ASA and CFO/COO of Høegh Autoliners. He has also been president of the commercial shipping division in the Klaveness Group, and a consultant for McKinsey & Co.

Auke LontPresident and CEO

Lont holds a Master's degree in econometrics from Vrije University in Amsterdam. He became President and CEO of Statnett in February 2009 after having held the position of CEO with the consulting company Econ in Norway. Lont has previously held top executive positions in Statoil, has worked in South Africa and was the CEO of Naturkraft AS. He has more than 30 years’ experience from the energy sector. Auke Lont is a member of the board of the employers' association Spekter and the railway infrastructure company Bane NOR

Appendix42

Connecting the European Power Market

NordLink• Interconnector between Norway and Germany• The last few years have seen a significant increase in wind power and

solar power in Germany. When the winds blow and the sun shines this creates a surplus of renewable energy in Germany, which also leads to lower prices than in Norway. Norway can then import this power and conserve the water in Norway's many hydropower reservoirs.

• When there is little production of wind power and solar power in Germany the need for power increases and the prices will be higher than in Norway. Norway can then produce hydropower and export it to Germany. This way we get more out of the resources on both sides of the cable.

North Sea Link (NSL)• Interconnector between Norway and the UK• The interconnector will link the Nordic and UK markets, providing

benefits on both sides• When the winds blow in the UK and wind power production is

high, Norway will be able to import power from the British to a lower price than in the Norwegian market and conserve the water in Norway's many hydropower reservoirs.

• When there is little wind and a greater need for power in the UK, the situation will be the other way around. The UK can then import Norwegian hydropower at a lower price than in the British market and through this secure the power supply.

• The advantages of this exchange of green energy include:• Increased security of supply because one can import more electricity at a lower price when the power situation is tight• Increased market for power producers when there is a surplus of power in the national markets• Facilitation of higher production and consumption of renewable energy in Norway, the UK and Germany, thereby contributing to future climate-friendly energy• More predictable supply situation and price throughout the year and from year to year

• Both projects are organized as "unincorporated joint ventures". Statnett holds 50%. Statnett's part in NordLink is organized in a wholly owned subsidiary, but fully financed by the parent company. Costs and trade revenues are shared equally. Counterparts are National Grid for the NSL and TenneT and KfW owns the southern part of NordLink through a jointly owned German company.

• Statnett's parts are fully regulated, revenues are cost based, same as for onshore grid. So the trade revenue risk rests with the customers.

Appendix43

Tariff

• Tariff is split between a variable part and a fixed

part.

• The variable part (approximately 20%) is based on

marginal transmission loss in each node and billed

weekly

• The fixed part is designed to cover the remaining

part of the allowed revenues. It is allocated

according to customer groups, load/production and

point of connection, and paid mid-month for the

same month

• Set by Statnett ahead of each year.

• Defines how Statnett distributes the allowed

revenue between different customer groups.

• The tariff does not define the long term

revenue:

• Any difference between collected tariffs

and the allowed revenue is made up in

subsequent years

• End result: Over time, Statnett ends up

with the cost based regulated allowed

revenue cap.

Appendix44

Financial information and contact info

Contact details:

Knut Hundhammer (Executive Vice President CFO Corporate and Public Relations)

Tel. +47 23 90 32 10

[email protected]

Petter Erevik (SVP, Director of Finance)

Tel. +47 23 90 35 70

[email protected]

Marte Bakken (Senior Advisor, ESG)

Tel. +47 23 90 30 05

[email protected]

Availableat:

http://www.statnett.no/en/investor-relations/

mailto:[email protected]

mailto:[email protected]

http://www.statnett.no/en/investor-relations/

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Investor Presentation June 2020 · Under construction Western Corridor, voltage upgrade South 6,600...

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